Rystad Energy released a press release in March forecasting record-breaking renewables spending in 2021, to the tune of $243 billion this year. This narrows the spending gap with oil and gas providers, which they project will remain flat but still a significant $311 billion. Today, we’re going to digest that press release a bit and take a look at the bigger picture for energy, oil, and gas markets.
We know that oilfield suppliers have taken meaningful steps towards diversification. Rystad Energy’s press release suggests that 2020’s crummy financial results and a new, progressive administration mean oilfields need to do more to stay on top of the future of energy. We say oilfields can do so if they want to because oil is only a minor player in energy.
The Quick Details About Renewables Spending in 2021
Per Rystad Energy:
- Renewables capital expenditures (a.k.a. CapEx) will be record-breaking this year.
- Expenditures on new machinery, supplies, and maintenance should hit $224 billion globally.
- This year’s oil and gas CapEx will stay in line with the $306 billion spent in 2020 — staying about the same.
- This is a far cry from the petroleum industry’s better days, which are only mere months behind us.
- For instance, E&Ps splurged $422 billion on supply purchases in 2019.
The spending gap between renewable energy and oil and gas is closing. Per Rystad Energy, most of the renewable energy capital — $100 billion worth — will fund onshore wind projects (mostly in Asia). That’s about a $6 billion increase over last year.
- Solar spending on Photovoltaic (PV) systems is increasing, too.
- It should climb nearly 10% to $96 billion this year.
- Offshore wind will see CapEx grow to roughly $46 billion; that’s a $3 billion increase over last year.
Much of the new money will come from Asia — specifically, China — which boasts 156 gigawatts (GW) of capacity under construction as of January 2021.
But let’s pause for a moment to put that in perspective. 156 GW may not seem like a powerful number, but we need to grasp how much energy storage that really is.
How Much Energy Is 1 GW?
A watt is a measure of power, and there are 1,000,000,000 watts in 1 GW. The US Office of Energy Efficiency & Renewable energy says one GW is as much energy as 1.3 million horses thundering across an enormous field, or 2,000 Corvette Z06s running on a track at once. Can you feel the earth shaking under your feet and hear the roar of 2,000 Corvettes in your ears? (Corvette, really? Yes, it is an inside joke)
Here’s another way to imagine it: the average US home uses 877 kilowatts per month and would run for 1140 months — 95 years — on one GW. Therefore, Asia is working on grid capacity that could run your home for the next 150,000 years if your home was the only one on the grid.
- Statista.com says there are at least 460,000,000 households in China, though.
- The average household there is smaller and uses 10% less power than an American home.
So we aren’t comparing apples to apples, just imagining gross amounts of energy.
Now, Back to Asia
China’s choice to slowly reduce subsidy assistance (since 2019) for renewable energy projects forced many energy providers to start renewable energy construction early. This encouraged a whirl of spending activity. Per the Rystad Energy press release, much of that renewables spending in 2021 is headed to China’s 800-megawatt (MW) Rudong offshore wind farm, some to Orsted’s 1.4 GW Hornsea 2 project off the UK, and some to a 2 GW Zhuozi County Project.
“Last year’s events forced leading oil and gas businesses to look at strategies to reduce exposure to the risky market amid the energy transition,” said Chinmayi Teggi, energy service analyst of Rystad Energy. “Oilfield service suppliers… have started a considerable transformation, hoping to be more relevant in a greener market and become a more attractive option for investors.”
That energy transition Teggi mentions seems to suggest the global oil industry is facing an uncertain future. But it’s not, and we’ll get to that in a moment. First, let’s think about the overall global energy market.
COVID-19 Hit the Energy Market Hard in 2020. Is $243 Billion Enough?
Investments in new renewable energy storage capacity are essential because they can bring jobs and financial security to a financially insecure world.
2020 was a lamentable year in so many ways:
- The COVID-19 pandemic led to a the largest transfer of wealth the world has ever seen, supply chain struggles, and government abuse of your natural rights.
- Around the globe, tens of millions of people are at risk of falling into extreme poverty (due to government spending, but this is an article for another day).
So 2021 is a perfect year for new jobs in energy. And those potential jobs will likely become a reality, with $243 billion backing the developments of grids, storage facilities, transmission technology, and more.
There Were a Few Positive Performers in 2021
Energy giants like Halliburton, Schlumberger, and Baker Hughes seemed to have made it through 2020 with noticeable gains. Between an uptick in US shale activity near the end of 2020 and a backlog of improvements finally attended to, these organizations’ overall revenue gained 6% in the fourth quarter from the preceding three months.
The wind and solar sectors saw some growth in the fourth quarter of 2020, too:
- Per Rystad Energy, service players involved in wind projects recorded a 15% boost to revenues for the fourth quarter of 2020, and full-year revenues improved by 20%.
- Those numbers are quite significant when we consider the rippling effects of COVID-19 through all sectors — not just energy — around the world.
- Notably, sales at service providers involved with solar projects climbed 14% for the year.
Chinese suppliers like Jinko Solar, LONGi Green Energy, and Trina Solar — all solar panel manufacturers — accounted for much of that growth.
Still, the pandemic and the resulting decline in demand for photovoltaic systems led to a slowdown in sales in the second half of the year. According to Rystad, that reduced demand coupled with the price increase of raw materials (and some costly shipping and supply chain hiccups, we would add) caused changes to the solar PV industry, which shifted to high-margin orders and more efficiency improvements.
Breaking It Down for People and Oil
The Rystad Energy analysis captures two key trends: increased renewables spending in 2021 and a static spending plan in oil and gas.
What The Increased Renewables Spending in 2021 Means for Most People
$243 billion is a lot of green! So what does it all mean for humankind? Well, it means that much of the global population, especially in Asia, will have energy security within the next few years. This is an enormous nation that was experiencing the worst power outages in decades post-COVID-19.
There are currently about 11.5 million green energy jobs on the planet. We can expect more green jobs directly, many in Asia and many in Europe. You already know this means food security, healthcare, and financial security for untold numbers of dependents.
Entrepreneurs and startups will also do well. There will be significantly more capital invested in the exploration of green ideas for the future. Wind and solar are the key players today.
What it doesn’t mean, and this might surprise you, is a much-diminished need for oil. Nor will it manifest in decreased spending on upstream oil and gas developments.
We don’t deny that capital spending on wind and solar projects is increasing every year, even in the face of a pandemic that shook many sectors to their roots. But it’s still nearly $70 billion less than what oil and gas plan to spend this year on exploration and production in a post-pandemic “meh” sort of year. Oil and gasoline are relatively small players in the global energy realm.
How Much American Energy Comes From Oil?
I’m glad you asked.
The US Energy Information Administration (EIA) says we consumed 4,009 billion kilowatt-hours (kWh) of electricity in 2020. Furthermore, EIA reported that US energy consumption dropped tremendously in 2020, due to the pandemic. Here are the key facts:
- Less than half of one percent (0.4%) of that energy came from petroleum.
- Of all our energy sources, natural gas is the biggest player domestically, supplying 60% of our electricity.
- Renewable energy sources, including solar, wind, hydropower, and the like, totaled only 19.8% of the nation’s energy.
A natural math master wonders where the remaining 19% of our energy was sourced — it came from nuclear power.
And, as much as we’d like to forget it forever, let’s remember that 2020 was a pandemic year. EIA reported that US energy consumption dropped tremendously in 2020, thanks to COVID-19, stay-at-home orders, and travel restrictions. Commuter traffic, leisure travel, transport, and travel by air and sea all ground to a halt in 2020. That’s where the actual oil market lies: transportation. Domestic appetite for petroleum dropped by about a third during COVID-19.
This article was originally published August 26, 2021 on KirkCoburn.